Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Spooks, Ghosts and Graveyards

Oct 26, 2012

Market Watch with Alan Brugler

October 26, 2012

Spooks, Ghosts and Graveyards

It is tempting to use various Halloween adjectives in a pre-holiday column like this one. Too tempting for me to refrain! We routinely talk about zombies in the context of options positions that have gone close to zero value but come back to life ahead of expiration. There are of course ghosts of bull markets past, but they fly in all directions. For our primary theme, we settle on bulls being spooked by poor export sales, with corn and cotton being the examples. Soybeans whistled past the graveyard, with their confidence boosted by a diet of export sales reports released under the USDA daily reporting system.

Corn futures lost 3.12% for the week after posting gains the two previous weeks. Ongoing poor export sales and a rising US dollar index hurt the market, with traders beginning to question whether USDA is still high on projected exports for the year. Weekly export sales were again very weak at only 142,300 MT. The number was complicated by several switches out of the "unknown" category, which means sales were showing but they were already on the books. Total commitments are down 48% from last year at this time. China also cancelled 120,300 MT. Average daily ethanol production rose 4,000 bpd from the previous week. Ethanol stocks dropped to 18.8 million barrels.

Soybeans rose 1.76% or 27 cents per bushel for the week. They posted several strong days before giving back a little on Friday due to profit taking. Weekly export sales were about as expected at 522,200 MT. December meal futures rose nearly $20 per ton. China is still the dominant soybean buyer. US export shipments are ramping up sharply, as has been expected since the extent of the South American drought became obvious back in the spring. Export inspections were over 61 million bushels in the Monday report. The Thursday export report, which includes a few different days, showed 1.61 MMT (60.3 million bushels). Of those, China was the destination for 41.l7 million bushels.

Chicago futures were higher for the week, while the two hard wheat exchanges posted losses in the nearby December contracts. Weekly export sales improved, beating expectations at 572,000 MT. The US is still a little too expensive to compete with EU wheat into the North African and Middle East markets after freight is included. EU futures are rising against Chicago as they capture more sales, and are expected to eventually reach a tipping point where US offers are competitive. The Dow Jones- UBS index indicated that it will include KC hard wheat futures in the index for 2013. Maybe it is not a coincidence that CME Group is acquiring the KC exchange! Depending on January price levels and the total dollars invested in the index instruments, the change is expected to result in buying of 20,000 or more KC contracts, and selling of a larger number of Chicago contracts to meet the new target allocation percentages.

Cotton futures took a pretty large hit for the week, retreating 5.8%. USDA put export sales at only 34,500 RB of upland for 2012/13 and 13,200 RB for 2013/14. That was a marked slowdown, aggravated by a Bangladesh cancellation of 74,700 RB. Net pima sales did rise to 14,500 RB. Cotlook already raised projected global production by another 2.5% from their previous estimate, and increased projected global ending stocks. With the dollar also rising for most of the week, cotton export prospects would have dimmed at the prices we were trading a week ago. The market made the adjustment.

Commodity

Weekly

Weekly

Month

10/05/12

10/12/12

10/19/12

10/26/12

Change

% Change

Dec

Corn

$7.48

$7.53

$7.62

$7.38

($0.24)

-3.12%

Dec

CBOT Wheat

$8.58

$8.57

$8.73

$8.64

($0.09)

-1.00%

Dec

KCBT Wheat

$8.78

$8.90

$9.06

$9.09

$0.04

0.41%

Dec

MGEX Wheat

$9.18

$9.24

$9.38

$9.40

$0.02

0.21%

Nov

Soybeans

$15.52

$15.23

$15.34

$15.61

$0.27

1.76%

Dec

Soybean Meal

$471.20

$465.20

$463.80

$483.40

$19.60

4.23%

Dec

Soybean Oil

$51.19

$50.67

$51.58

$50.96

($0.62)

-1.20%

Oct

Live Cattle

$123.05

$123.90

$126.30

$125.50

($0.80)

-0.63%

Oct

Feeder Cattle

$144.83

$143.10

$146.15

$145.33

($0.82)

-0.56%

Dec

Lean Hogs

$76.55

$78.37

$79.63

$78.90

($0.72)

-0.91%

Dec

Cotton

$71.49

$71.36

$76.88

$72.42

($4.46)

-5.80%

Dec

Oats

$3.67

$3.92

$3.94

$3.90

($0.04)

-1.14%

Nov

Rice

$15.11

$15.03

$15.02

$14.80

($0.23)

-1.50%

Cattle futures lost 80 cents per cwt. for the week. The cash cattle market was mostly steady to $1 higher for the week. Wholesale beef prices were mixed. Choice boxed beef had gained $5.01 the previous week, but was up only 14 cents this week following a sharp decline in the quotes on Friday. Choice beef prices were less than a dollar from all time highs before backing off. Select product was down 0.4% on a Friday/Friday basis. Estimated beef production for the week was down 2.2% from the same week in 2011, and tonnage for 2012 YTD is 2.0% below last year. Weekly export sales at 16,600 MT were up 15% from the previous week.

Hog futures lost 72 cents or 0.91%. That ended a string of 6 weeks of strong gains. Estimated pork production for the week was down 0.1% from the previous week, and up 1.4% from the same week in 2011. Pork production YTD is up 2.4%. Estimated carcass weights are down 3 pounds from last year, which is offsetting the larger slaughter numbers to a degree. The pork carcass cutout value lost 4.36% for the week on a Friday/Friday basis, with sharp declines in hams and loins. The CME Lean Hog Index is $85.22, a $6.32 premium to nearby futures.

Market Watch:

Futures will begin the week reacting to any surprise positions inherited by the expiration of November futures options for grains on Friday. Monday also marks a full moon, quickly followed by Halloween on Wednesday. Wednesday is also month end, and quarter end for some hedge funds, so position adjustments will be a factor all week. USDA will issue the usual weekly Export Inspections report on Monday, along with Crop Progress.Wednesday will mark the expiration of the October live cattle futures contract, and also the weekly ethanol production statistics from EIA. Thursday will feature the weekly Export Sales report, while Friday will be the expiration date for November live cattle options.

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